Category Archives: Insurance

Mortgage or life insurance

Is Mortgage insurance the same as life insurance?

No so much. Not so much at all. Mortgage or Credit Insurance is just not the same as life Insurance.

There are BIG key differences between mortgage or credit insurance and life insurance.

  1. Post Claim underwriting Underwriting for mortgage insurance is done AFTER a claim not BEFORE a claim by looking at health, age and any pre-existing conditions that might exist, during the application process. What that means is that an individual paying for mortgage insurance for any length of time could be found to be uninsurable only after a claim gets submitted resulting in benefits not being paid.  There’s no guarantee. Yes. It’s possible and risky. (Google scary life insurance stories)
  1. Beneficiary choice. With mortgage insurance, the lender is the automatic beneficiary; not anyone you might choose like a spouse or a family member.  Personal circumstances can and do vary when an individual dies. Paying off the mortgage may or may not be the best option; cash might be more important.
  1. Higher Cost/Declining Benefit: Mortgage insurance offers a declining amount of coverage (in line with your mortgage) for a typically higher cost that one could obtain level life insurance for. There are no discounts for being a non-smoker or being healthy as everyone pays the same price. Prices do also vary for mortgage insurance but there is less transparency in the marketplace so it’s hard to compare pricing.
  1. Portability:Mortgage insurance is tied to your mortgage and is therefore not transferable if you change lenders. Higher rates may apply when you start over with another lender. With life insurance there would be no need to start over. Life insurance offers stable & consistent coverage and often renewable/convertible options maybe offered on a term policy that will allow one to convert to a permanent policy without a medical exam.

These differences are significantly significant. and too significant to be left to chance.

The real key takeaway is that mortgage/credit insurance benefits creditors or lenders first; personal life insurance benefits individuals better.

Take time to investigate and learn.

 

 

Mortgage Insurance is not the same as Life Insurance

How many consumers know that Mortgage Insurance or Credit Insurance is not the same as Life Insurance ?

Mortgage insurance or Credit Insurance is not the same as Life Insurance but I fear that too many consumers don’t know the difference.   A lot of Mortgage or Credit Insurance is sold by lenders when consumers purchase a home or take out a line of credit. Lenders know how to lend but I question lenders being the right ones to sell consumers insurance. Could it be that one of the reasons that consumers don’t know the difference between Mortgage or Credit insurance and Life Insurance is BECAUSE they have purchased it from their lender? I believe it’s quite possible.

There are key differences between Mortgage or Credit insurance and Life Insurance.

Here are 4 Big Differences :

  1. Post Claim underwriting:  That’s the way Mortgage insurance works. But what does that mean? It’s all about the timing of the underwriting.  Underwriting for mortgage insurance is only done when and if you have a claim. Life insurance by contrast is underwritten when you purchase the policy. What that means is that the individual buying the mortgage or credit insurance may not be covered when they think they are, because they may not qualify for the coverage when they buy it. Paying premiums but no actual coverage?         Yes. That sounds crazy and a bit risky. Not having complete certainty about whether or not mortgage or credit insurance will payout can really hang a cloud over a financial plan. Google  “Mortgage Insurance Horror Stories if you have a strong heart to read or watch some heartbreaking tales of those who experienced a family death only to have a mortgage insurance claim denied.  Or watch the video from CBC marketplace on mortgage insurance vs. life insurance     CBC Marketplace – In denial
  2. Your family is not the beneficiary: In all the flurry and stress that can accompany buying a new house and signing all of the paperwork that comes with a mortgage,  consumers can often fail to notice  that their lender did not mention the subject of a beneficiary. That’s because  the lender is the automatic  beneficiary of the death benefit in a Mortgage or Credit insurance policy.  A  false sense of security may exist that cash will be made available upon the death of an individual with mortgage or credit insurance. Circumstances can and do vary greatly when an individual with a mortgage dies; paying off the mortgage may or may not be the best option. Cash might be more important.
  3. Same Premium Cost/Declining Benefit: Most of us understand why there’s an increasing premium over the course of a life insurance policy to retain the same amount of insurance as one ages. It intuitively, makes sense. But that’s not the way Mortgage insurance works. In the case of Mortgage insurance, consumers pay the same (high) premium even though the coverage or benefit (payout) is actually decreasing as the mortgage is paid out over time.
  4. Mortgage insurance is not portable: When changing lenders, mortgage insurance does not move with the mortgage. Higher rates based on age might apply that need to be factored in. With life insurance there is no need to ‘requalify’ for insurance and often with a renewable and convertible term policy, it can be converted to a permanent product at any time without a medical exam.

These differences are significantly significant. 

I think that the differences between Mortgage/Credit insurance and Life insurance are too significant to be left to chance. Often consumers purchasing Mortgage or Credit insurance are doing so at a time of much stress; taking on debt is always stressful. When signing a mortgage, getting a line of credit or taking out a car loan, I suspect that many believe that they will be looked upon unfavorably by their lender if they chose not to take the insurance at the same time. It might have to do with the very serious looking waiver that needs to be signed when a borrower declines,

The Option is real Life Insurance for real risk management 

The vast majority of financial experts agree: Life insurance provides better coverage, more Flexible coverage and in most cases less expensive coverage to reduce the financial risk that occurs when a borrower dies with outstanding debt.

The staff that consumers deal with through a lender are not licensed insurance professionals. So it’s hard not to question… Why are lenders selling mortgage or credit insurance when they are not trained for the specifics?

At the risk of losing credibility, I’m going to admit (for the greater good), that I found myself ain the middle of a credit insurance misunderstanding a few years ago when an increase in a line of credit was required a few years ago, as we closed on a house before selling a house we were moving from. Here are some of the gory details that took place between ourselves and a Big Bank Lender:

  • No information on premiums was provided
  • No health information was requested (See #1 above re: the way underwriting works for credit or mortgage insurance)
  • Outrageously expensive premiums of varying amounts were added to a line of credit each month. While I made notice of them, I fear others may not have noticed or questioned them.  I did both.
  • When questioned; our bank manager could not provide any information about the premiums. When I suggested we would move our business elsewhere, she agreed to reimburse and she did so; reimbursing us in varying amounts between $300-$500/month like it was from some sort of petty cash fund.

That’s an odd and surprising way to gain reimbursement of credit insurance premiums. Getting reimbursed was my main priority at the time, but many questions stay with me even a couple of years later:

  • Why was the reimbursement made in this way?
  • How were those premiums calculated since they varied so much over the few months that they were charged?
  • Why was proper documentation of the mortgage insurance not provided initially or after the fact?
  • How many other consumers are paying outrageous Mortgage or Credit insurance that they have accepted either without question without realizing?

What I do know, is that change is needed.  At minimum, consumers need to be made more aware and more financially literate about the differences between Mortgage or Credit insurance and Life Insurance. Mortgage insurance benefits creditors or lenders first;  but personal life insurance benefits individuals better. 

Take time to investigate and learn.

Our LegacyTracker personal financial organizing tool provides the ability to organize, safeguard and share your important information and documents like life insurance policies, with loved ones or beneficiaries, executors or advisors.

 

How hard do insurers work to find life insurance beneficiaries ?

How hard do Insurers look for life insurance beneficiaries ?

Governments around the world are starting to take a proactive role in helping life insurance beneficiaries find the policies they are entitled to.

Unclaimed life insurance polices are a problem I’ve worried about for years and were a major impetus for developing LegacyTracker

Last November, France’s financial sector regulator fined CNP Assurances 40 million euros ($50 million) for failing to do enough to find the beneficiaries of deceased life insurance policyholders. They characterized CNP’s efforts as being highly insufficient . CNP who is the largest insurer in France (17% market share),  responded by saying that they really always intended to pay all those unclaimed policies.

In their press release after the news of their fine was released CNP also indicated that it has never derived any profit from unclaimed settlements…”income earned on unclaimed funds had been added to the sum used to pay all policyholders” As an accountant, I’m a bit puzzled by that statement but…onwards.

Since 2007, life insurers in France have had a legal obligation to try to find life insurance beneficiaries of unclaimed policies after a holder’s death.

Prior to 2007,  it was up to the heirs to claim the funds . That’s how it currently stands in Canada but this presumes that those beneficiaries or heirs know about a life insurance policy.  The Cour des Comptes public audit office in France indicated in a report last year that life insurers have been very slow living up to their obligations to find heirs since the 2007 law was enacted and estimated that unclaimed life policies might be worth at least 2.76 Billion. 

More info on the CNP story can be found here 

So, What about Canadian Life Insurance Beneficiaries ?

The majority of the western world has Unclaimed Property legislation in place which includes unclaimed life insurance policies.  However, only Alberta, Quebec and to a certain extent, British Columbia have Unclaimed Property legislation in place in Canada. In recent years, governments have really ‘zoned in” on the Win/Win Opportunity that such legislation provides to residents and their own treasuries.  There has been a gradual shift to tighten up the rules around what assets are included in such legislation. An example would be the inclusion of Gift Cards in certain states like New York and New Jersey. And, as is the case in the US, Governments are ensuring that life insurers work diligently to identify unclaimed life insurance policies based on death (“The DMF or Death Master File ) In recent years, a national multi state audit project has been underway which has so far resulted in the return of more than $2.7 Billion to beneficiaries and/or State Treasuries. Auditors actually determined that  insurers were using the ‘DMF” to stop annuity payments to deceased policy owners but not using the same files to find beneficiaries and to designate the policies as “unclaimed” Sun Life of Canada settled Unclaimed Property complaints with State Insurance regulators in November 2014 for $3.2 Million

Only 34% of Canadians have consumer protection in place in the form of Unclaimed Property legislation 

As well, the rules around life insurance policies in most jurisdictions in Canada do NOT include an obligation by the insurer to look for beneficiaries.

Each week I receive approximately 2-3 emails from folks that are looking for some guidance around finding possible life insurance policies. There’s not much I can offer to them outside of what I’ve already offered in earlier posts like this one which also included a  summary of the changes in the life insurance landscape over the years..another reason why finding a lost life insurance policy is made difficult,…another reason why legislation is needed and another reason why it’s important to safeguard & share important information about life insurance policies with loved ones and beneficiaries

Lost Insurance Policies can cause additional grief for loved ones

Ever changing insurance market

 

How hard do insurers work to find life insurance beneficiaries ?

Lost Insurance policies cause additional grief

Providing life insurance to your loved ones is great but lost insurance policies cause additional heartache

It happens all too often.  Insurance documentation from years ago may have been misplaced or lost causing heartache or difficulty for you, a loved or an executor.To make matters worse, tracking down an insurance policy is made more difficult by the number of changes that have taken place in the Canadian Insurance industry over the years. A multitude of mergers, takeovers & name changes has occurred and will continue to occur.

Here’s a list of many of the Insurance company mergers and name changes that best emphasizes that point:

Ever changing insurance market

 

Looking in the usual places for policy information makes sense like safety deposit boxes or filing cabinets. Contacting known professional advisors (beyond just an insurance agent) is a good thing to do in case they have copies of such documents. Employers or previous employers as well as pension administrators or membership directors of professional associations would be aware of group policies that often times individuals don’t think to make note of. The same would apply to any insurance that an individual might have purchased by way of their credit card issuer.

Beyond that…If you need some assistance in tracking down a life insurance policy, the OmbudService  for Life & Health Insurance (OLHI) may be able to assist. The OLHI is a national independent complaint resolution and information service for consumers of Canadian life and health insurance products and services, including life, disability, employee health benefits, travel, and insurance investment products such as annuities and segregated funds.

Safeguarding insurance information & documentation is key but sharing that information with beneficiaries and loved ones is also critical. There is no obligation on the part of insurers to come looking for beneficiaries at any point.

Experts estimate that some 20-30% of insurance policies go unclaimed.

Billion dollar lawsuits are still ongoing in the US where each state requires unclaimed policies to be transferred to the state for safekeeping and inclusion in their open database of unclaimed financial assets. That’s an essential part of Unclaimed Property Legislation that only 2 provinces enjoy currently in Canada.

The OLHI may be of some help but before a policy search for possible insurance coverage on a deceased’s life can take place, 2 requirements must exist:

  1. There must be a reasonable basis for a search-basic evidence must exist to support the fact that some unlocated coverage does exist.
  2. Specific factual data about the deceased must be made available.

This kind of search will not uncover contracts acquired outside of Canada, nor will it uncover coverage obtained under employer group contracts. We understand that approximately 22% of those who have requested a search for a lost life insurance policy via the OLHI have found one.

The OLHI also provides tips for conducting your own search. However, it’s really unfortunate that unlike many other developed countries, the majority of Canada does not have Unclaimed Property Legislation in place which would also provide an online searchable database.

Our good friend Michael Hartmann has been a life insurance agent for over 10 years and recognized the problem of lost insurance policies over 6 years ago when his own father did without sharing all of the information on his policies. Michael went to work and established http://www.findyourpolicy.com .

FindYourPolicy offers a secure online insurance registry where insurance policy information can be secured for free.  The charge for searching is less than $20. Michael indicates that the average insurance policy is approximately $120,000.

Spending hard-earned after tax income on an insurance policy for the benefit of someone you care about makes safeguarding & sharing your policy information a worthy ToDo. No one can secure this information as well as you can. Please do it.

Our LegacyTracker financial organizing tool provides the ability to organize, safeguard and share your important information and documents like life insurance policies, with loved ones or beneficiaries, executors or advisors.

Orphan Policies increase the risk of Unclaimed Policies

What makes it even more likely that an Insurance policy may go unclaimed  ?

Orphan Policies 

To clarify, Orphan policies do not relate to coverage for Orphans but rather to the fact that over time, lots of policyholders become “unattached” to a servicing agent. The policy holders become Orphans in a sense.

A recent article from  Insurance Business entitled Orphan Policyholders – How many are there ? noted :

Life insurance

Statistics vary about how many policyholders are orphans with figures being reported as high as 50 per cent for some companies. In an economic downturn more agents tend to leave the business, which creates more orphans. This suggests that the number of orphans likely has increased over the last several year.

 

The same article notes a recent survey conducted by Toronto based NewLink Group that estimated orphan policies being as high as 36% of personal life policy holders in Canada and 29% in the U.S. Orphan policies are more likely to be those purchased from a life agent/broker (41 % in Canada & 39% in the U.S.) as compared to those purchased from a financial planner or advisor (18 % in Canada & 22 % in the U.S.)

Whats at risk when a policy becomes orphaned ?

  • Beneficiary changes
  • Address changes
  • Insurance policy maturities as well as
  • Awareness of an actual claim occurring

A major gap develops when individuals and families may no longer have a direct contact with their contract provider by way of servicing agent. Unclaimed policies are more likely to be at risk of becoming unclaimed.  Orphaned policies may provide another reason why industry experts have estimated that Unclaimed policies may be as high as 20-30% of all life insurance policies

 

 

2 BIG lessons behind Billions in Unpaid Death Benefits

Unpaid Death Benefits from Life Insurance policies are still very much in the news in the US & that’s not likely to change for a while given that investigations & law suits are still ongoing. All in all, it’s a Sad & Ugly story that includes the use, abuse & non use of the “Death Master File” & Unknown Billions of Dollars in Unpaid Death Benefits. It’s also a reminder & a confirmation of the need to safeguard life insurance policies and share the details with loved ones. 

Unpaid Death Benefits from a Life Insurance Policy

Unpaid Death Benefits

Unclaimed death benefits refers to a life policy where death benefits under that policy have not yet been paid to a beneficiary by the Insurer. In the US, where Unclaimed Property Legislation has existed for some 50+ years, Individual States have become quite ‘proactive‘ or ‘aggressive‘ with Insurers in recent years.  The use of the term Proactive versus Aggressive depends upon whether you are a State or an Insurer & it all more/less relates to the use, abuse or non-use of the US Social Security Administration’ s Death Master File

That’s the file that most State Governments expected Insurers to use to identify deceased life policy owners in a timely manner. However, too many delayed or non payments to designated beneficiaries were suspected to exist and so, a multitude of reviews have taken place over the past 2 years by both State Attorney Generals & State Insurance departments to see whether, and to what extent, insurers had failed to fulfill their beneficiary payment responsibilities. Examinations, Public inquiries, subpoenas, lawsuits and Audits have been BIG news  across the US given the Billions that have been estimated to be outstanding.

A number of States have proudly announced settlement agreements reached with various insurers. Multi State settlements often totaling in the millions are becoming the norm. No wrong doing has actually been admitted to by the Insurers; they have only indicated that the settlements have more to do with moving “things forward”

New York/New York

While actual Go Forward Guidance in the form of changes, new laws and regulations have been slow to materialize, in  December 2012, New York enacted a law requiring insurers to make regular searches of records to identify when a policyholder died and to locate beneficiaries so that life insurance proceeds can be paid.  

And, in July last year,  New York announced that its investigations, which started in July 2011, had resulted in more than $1.1 Billion in unclaimed life insurance benefits being recovered. It was determined that Insurance companies were not using the Death Master file as provided, to search  for life policies that needed to be paid out BUT most insurers were using it to determine when to stop making annuity payments. That’s troubling to say the least.

As a result of New York’s findings, it’s estimated that 100,000 individuals or families across the US including 25,000 from New York received policy benefits. The oldest claim dated back to 1960. Many of those recipients were completely unaware that there was a life insurance policy in place. That made for some emotional press conferences.

In all, $1.15 Billion in recoveries had been made to last July and $339 Million of that was turned over to beneficiaries. The difference will reside with New York State but listed on the States Unclaimed Property website for heirs to find.

It’s unfortunate that the delay in developing uniform guidelines and in providing  better guidance continues to create uncertainty for insurers & delay death benefit payouts further.

Estimates of how much money unclaimed benefits may actually represent across the US vary widely from a few Billion $ to Multiple billion $. No one can yet claim to have an actual number yet outside of describing it as BIG

This may all sound very confusing to those unfamiliar with the Unclaimed Property legislation that exists in many countries like the US (but not Canada outside of Alberta and Quebec) . Many may wonder why each State is being so very proactive.? The answer is that these investigations, audits and new guidelines have major financial implications not just for grateful beneficiaries but also to the individual states as well. That’s due to the fact that in the case of any of those unclaimed death benefits where the beneficiaries may be unable to be located or found; those death benefits will remain with the State & not the Insurer.

New developments are certain to occur shortly, but the real lesson in this story is not about the Greed which would seem to be at play here, but the vital importance of

1) Carefully Safeguarding the details of Life Insurance Policies for the benefit of those you gave consideration to in the first place by making them a beneficiary and

2) Advising those beneficiaries or those close to you about those Life Insurance policies and where the details can be found.

The best person to safeguard your legacy is You.  

LegacyTracker can help. We’ve included a safe & accessible location inside LegacyTracker to  secure your life insurance details. You can also can attach the policy alongside that information. 

Unclaimed in Pennsylvania

Life insurance is an important safeguard for financial security for families and loved ones but  only if it does not get added to the Unclaimed Property balance.” So said State Treasurer Rob McCord of Pennsylvania. “Each year, Treasury receives millions of dollars of unclaimed property, a considerable portion of which are unpaid or uncollected life insurance benefits,”

Mr. McCord knows what he’s talking about because he and his department have reunited $13.2 M in unclaimed life insurance benefits with the rightful owners. However, a lot  more remains to be claimed with the help of the Treasury’s online database at www.patreasury.gov.

In the Great State of Pennsylvania, financial assets get paid to the Treasury after approximately 5 years of no contact with the owner, or in the case of life insurance policies, with the insured or the beneficiary. The “Holder Compliance Unit” within the Treasury’ has increased their efforts considerably to collect dormant life insurance proceeds and make insurers aware of their obligations under Pennsylvania’s unclaimed property law.

The annual deadline for insurance companies to report & remit dormant or unpaid life insurance proceeds is each year on April 15th… writing off unclaimed property as income does not relieve this liability

Since 2009, Treasury has collected $123 M in unpaid life insurance benefits from several of the nation’s largest insurers The, $13.2 M noted earlier is part of this total which has been paid to beneficiaries; it`s an ongoing effort to collect from the Insurance holder and find and payout the rightful claimant.

Of course Unclaimed Insurance Policies are just part of a bigger pool of Unclaimed Financial Assets that are collected from Organizations in accordance with legislation in order that the State can help find legal owners. Since January 2009, the Pennsylvania Treasury has collected more than $1.1 B  in unclaimed property, returned more than $532 M in unclaimed property to the rightful owners, and adding about $617 M  to the State’s General Fund via the Unclaimed Property Program. That leaves approximately $2.2 B in unclaimed property. That`s a lot of unclaimed property for a population of approximately 13 million

Have you ever lived in Pennsylvania or know someone else that has? Check out the database here  www.patreasury.gov.

Mortgage or life insurance

Why? $1 Billion in US Unclaimed life insurance benefits

This story will help provide you with a lot of the “why” …Why I was compelled to develop LegacyTracker…

Revelations from a Consumer Reports investigation in 2013 are still BIG news in the US. For good reason as the revelations were a bit shocking and disturbing to say the least as they related to the fact that at least $1 Billion in life insurance benefits had not been paid out. 

CBS News was one media outlet who followed up on the story (link provided below) But beware, as the video may make you weep both for the individual that purchased and paid for a life insurance policy with their hard-earned/after tax money and the beneficiary who has not claimed the benefits under the policy.

This may not shock Canadians because most of us live in a province or territory that does not have Unclaimed Financial Asset Legislation. But in the US, such legislation has been in place for 50+ years as an integral part of Consumer Protection and that legislation requires all “holders” of financial assets to turn any assets owing to a consumer over to each State after a certain period of time, in order that the State can take on the task of finding those owners.

Therefore, when it was determined that Insurers were not being particularly diligent in turning those unclaimed insurance policies over, a lot of audits, investigations, litigation and ultimately, settlements were initiated along with a lot of excuses from Insurers. Audits found “an industry wide practice of failing to pay death benefits” even though the insurers had access to federal death records.

This was only heightened when it was determined that many insurers were using Social Security’s Death Master file to identify those who had died so they could stop paying annuity payments but were not using that file to find deceased policy holders and payout benefits to their beneficiaries. Yes. Disturbing.

As the reporter notes…”they kinda didn’t want to know that you died so they can keep the premiums coming until they find out you have passed away”.

Mellody Hobson of CBS News summarized in her report:

  • $1+ billion in unclaimed insurance policy benefits have not been claimed
  • 1 in 600 people have unclaimed benefits
  • Payouts range anywhere between $2,000 – $300,000
  • The insurance company had no real legal obligation to look for the beneficiary
  • The insurance companies were reported as saying that $1Billion in unclaimed policies was a “minor problem

The Bottom Line ?

As the CBS reporter concluded

“Ultimate responsibility lies with beneficiary. It sounds so mundane but so many people don’t tell their loved one where the policy is, what the company is and that they are a named beneficiary”.  Agreed. So these are the key “takeaways” from this disturbing story:

  • Know what you own
  • Know what other loved one’s own
  • Know where your spouse’s life insurance policy is
  • Make sure beneficiary information is up to date
  • Make sure your beneficiary knows where your policy is

This story supports the reason why we built LegacyTracker.

Too many assets including insurance policies are being left unclaimed. The detail that you or a loved one needs to provide about existing life insurance policies is a key template built into Legacy Tracker

And the situation in Canada? Even more murky…

We don’t really talk about it in Canada and insurance companies don’t talk about it. What is the value of unclaimed insurance benefits in Canada? It’s anyone’s guess but some within the industry estimate that 20-30% of insurance policies do not get cashed. I am not sure I want to estimate what that total value $ would be; I just know we need to reduce that figure. Please.

Here’s the Consumer Report on Unclaimed Life Insurance Policies

How to Find Lost Life-Insurance Policies – Consumer Reports